BLACKS SOLICITORS: Restrictive Covenants Revisited

Restrictive covenants are commonly used in employment contracts to control the activities of an employee during the course of his employment and post-employment. For example, to prevent an employee from setting up in competition with the employer or going to work for a competitor. However, they are also used in commercial agency agreements - agreements used when a business appoints an agent as an intermediary to negotiate and conclude contracts with customers on its behalf. Typically the agent is paid a commission on any sales which are generated, usually on a percentage basis.

In the case of One Money Mail Limited v (1) Ria Financial Services (2) Sebastian Wasilewski which was heard by the Court of Appeal towards the end of last year, the Court explored the enforceability of restrictions applying during and after an agency period. One Money Mail (“OMM”) and Ria Financial Services (“Ria”) were rivals in the money transfer services business. OMM specialised in the Polish market whilst Ria operated worldwide. Mr Wasilewski was OMM’s agent in Hereford. He was unhappy working for OMM so approached Ria to become its agent. However, Mr Wasilewski was subject to restrictive covenants prohibiting him from acting as an agent for any of OMM’s competitors within five miles of its place of business for a period of six months following termination.

The County Court found that the restrictions were too widely drawn to be enforceable, mainly because they were not accompanied by corresponding restraints upon OMM – it retained the right to appoint other agents within the area that Mr Wasilewski was operating and had in fact already done so.

However, the Court of Appeal disagreed and decided that the restrictions were reasonable and therefore enforceable because OMM had invested in Mr Wasilewski by training him and providing him with a certain level of technical support whilst acting as their agent.

Of particular interest in this case is that, although it was Mr Wasilewski who approached Ria about becoming their agent, OMM was successful with its claim against Ria because Ria had procured the breach of contract: it had been told by OMM of the restrictions within Mr Wasilewski’s contract but nevertheless still entered into a contract with him. Had OMM not notified Ria of those restrictions then it is unlikely that its claim against Ria would have succeeded.

For OMM though, the result was not all good: although it succeeded in enforcing the restrictive covenants, it failed to recover any damages from Mr Wasilewski or from Ria for the breach of contract because they were unable to quantify what financial loss they had suffered.

If you require advice regarding the enforceability or the drafting of an agency agreement or any other form of employment contract then please contact Luke Patel on 0113 227 9316 or by email at “LPatel@LawBlacks.com”.